Adam Smith Institute identifies £90 billion of privatisation possibilities

By Tim Montgomerie

On Friday the Adam Smith Institute published a report calling on David Cameron to sell the government's stakes in the nationalised banks, Royal Mail, Network Rail, BBC Worldwide, Channel 4 and other state assets. The report - by Nigel Hawkins - estimates that £90 billion could be raised.

The privatisation candidates are summarised in the table below (click to enlarge) and there's more in this PDF.

Do you read the Adam Smith Institute's excellent blog?

By Tim Montgomerie

The London think tank with the best blog is the Adam Smith Institute. If you don't have it as one of your favourites I strongly recommend that you do. This conservative often disagrees with its more libertarian conclusions but it is always thoughtful, newsworthy and polite. Here is a selection of recent ASI blogs:

Prohibition drives activities underground: "Gambling in India is only ‘unregulated’ because it is prohibited (with the exception of 13 casinos, horse-racing, and state lotteries). But prohibiton doesn’t mean that the prohibited activity doesn’t take place, it just means that organized crime takes over. Corruption like that alleged in Pakistani cricket is the inevitable, inescapable result." (Tom Clougherty).

Businessmen and politicians spend too much time together: "I dream of a world in which businesspeople get on with making money for their shareholders, rather than spent their time (and their shareholders' cash) pandering to politicians. But politicians today have enormous power – both regulatory power that can spare you from annoying new competition, and purchasing power that can bring you lucrative contracts. Adam Smith complained of such sordid relationships back in 1776 – and government was a good deal smaller back then." (Eamonn Butler).

Why we don't do hypothecation of taxes: "I'm in the camp which says we should have a carbon tax: but that doesn't mean that the the general level of taxation should go up nor that there will be new pots of money to pay for things environmental. We tax carbon because we want the externality of emissions included into market prices: this enables us to lower other taxes at the same time as imposing this new one." (Tim Worstall).

The relentless march of judicial activism: "Yesterday’s Mail reported that the Equalities and Human Rights Commission is debating whether to contest the Government’s budget in court, following the IFS’ claim yesterday’s that the budget is ‘regressive’. Never mind that the British public voted overwhelmingly for the parties proposing realistic deficit reduction; it may well be judges whom decide the nation’s budgetary priorities and, thereby, its level of indebtedness." (Matthew Triggs).

Let universities choose universities without government interference: "Universities already take the applicants whom possess the most potential. They have both the means to identify them and the incentive to reduce offers in line with personal circumstances; allowing the best candidates in can only raise the university’s position in the league tables. Universities do not need government instruction to act in their own best interest, and recruit the best applicants thereby." (Matthew Triggs).

Political correctness closes an effective Catholic adoption agency: "Catholic Care has been offering adoption services for over 100 years, successfully placing children with families and offering post-adoption support services. It has a much better record than a lot of adoption agencies run purely by local authorities and receives its funding from the Catholic Church. By removing the agency’s right to offer adoption to heterosexual couples only, the Commission has effectively cut off funding for this service, as the Church will not give money to support a service that acts contrary to their beliefs. As a result, orphans and vulnerable children will lose out as a respected provider of these services is forced to close. It remains to be seen whether other agencies will be able to increase their provision in the area to make up for this." (Sally Thompson).

Decriminalising prostitution: "Under market forces, it would be likely that there would be certain streets where prostitutes operated, both in terms of soliciting on the street and premises. These would be secure; they could either be gated or patrolled by private police firms funded by the prostitutes collectively. This type of scheme would mean safer working environments; prostitution could operate there free from the drugs trade, human trafficking or protection rackets." (Harriet Green).

Don't ban the burqa: "Britain is a nation united by liberty under the law. It is an idea rather than an ethnic construct, an idea that allows people of any race, religion, sexuality, lifestyle or opinion to co-exist peacefully, governed by the same laws. It is a unity through liberty and tolerance that allows Scotland, Wales and England, each of them distinct ethnic and cultural constructs to be part of a whole. It is a unity that allows us to have a political culture predominantly based on conflicting ideologies rather than on ethnicities or religions. To ban an item of clothing then, especially one peculiar to a particular religion or culture, is fundamentally anti-British. A ban ostracises thousands, impinges on their liberty, and favours other ways of life at the expense of a minority, striking at the very heart of the British unifying principle." (Anton Howes).

Adam Smith Institute proposes restricting legal aid in civil compensation cases

By Jonathan Isaby

A new paper published by the Adam Smith Institute today, Access to Justice: Balancing the Risks, calls for a "fundamental review of the funding of access to civil justice".

It raises concerns about claimants enjoying risk free litigation and asserts that civil legal aid is "dubious value for money" and should be abolished for most compensation claims, before proposing an alternative:

"The solution is to correct the risk imbalance between claimant and defendant within the framework of the existing conditional fee system - to devise a system of funding access to justice that is simple, robust, fair, accessible, affordable, and with costs proportionate to the damages at stake."

"The level of additional costs – specifically success fees and after the event (ATE) insurance – recoverable from unsuccessful defendants should be capped. This would stop claimants from bringing weak cases with no risk to themselves, while preserving access to justice in the absence of civil legal aid."

ASI Executive Director Tom Clougherty, observes:

"The current system of civil litigation in the UK is unfairly stacked in favour of claimants. We need to address the risk-free, compensation culture and the excessive costs it brings with it. The reforms we've proposed will save the taxpayer money while also ensuring a system of funding access to justice that is simple, robust and fair. It's a win-win that the Government should be tempted to go for."

You can download the whole paper here.

Adam Smith Institute paper argues for BBC to become a Pay-TV service

A new report from the Adam Smith Institute calls for the BBC to move to a voluntary subscription system for its income and give up its licence fee model.

Within the executive summary of the report, written by former BBC producer David Graham, the case against the existing licence fee model is summarised:

1. "It criminalises poor people.
2. It forces people to pay for genuinely “free” services funded by advertising.
3. It obliges the BBC to replicate a crude commercial model based on mass-audience advertising.
4. Universal broadband and the Internet make a “licence” to broadcast obsolete. On the other hand, they enable direct delivery of services outside the UK. The current funding model denies access to Britons and others resident overseas."

• "Subscription or Pay-TV is the medium’s largest and fastest growing revenue stream, and has the greatest ability to meet and “monetise” diverse tastes and preferences. Subscription services in the US have been responsible for some of the contemporary content most admired by professionals.
• Voluntary subscription (with some subsidy for core public service content) affords the opportunity to enhance ownership, involvement and participation. Nearly everyone in Britain watches or listens to BBC services every week. A large majority would be likely to subscribe."

Tom Clougherty, Executive Director of the Adam Smith Institute adds:

“The status quo will not be an option for the BBC for much longer. The licence fee is already an anachronism, and opposition will grow as technological advances and changing viewing preferences make it even more outdated. But most of the reforms on the agenda at the moment – like scaling back the BBC or sharing licence fee revenues with other broadcasters – risk stifling the potential of the British media. Our proposals, as well as addressing the unfairness of the current system, would set British broadcasters free to make a significant contribution to economic growth.“

A PDF of the full paper.

London's think tanks react to the Budget

OVERALL JUDGMENT

Madsen Pirie of the Adam Smith Institute: "Basically the coalition's first budget was a reality check, and an indication that Britain is on the way back from the madness of the Brown years. It will be a slow haul, but this was a positive start."

BIG CUTS IN SPENDING...

Matt Sinclair of The TaxPayers' Alliance: "There is plenty of very good news in the Budget.  A two year public sector pay freeze, the abolition of the Child Trust Fund and cuts in welfare spending are all longstanding TPA recommendations that will be absolutely key to getting the public finances under control.  As a result of all the measures proposed, annual spending will be £31.9 billion lower than planned by 2014-15."

...BUT NOT IN BRITAIN'S CONTRIBUTION TO THE EU

Open Europe: "While today's emergency budget in the UK provided many talking points for the media at large – it also provided new information for those with an interest in the UK’s ever-increasing contribution to the European budget *(courtesy of one T.Blair). Hopefully this graph should illustrate how sharply our contributions climbed last year, and will continue climbing until 2014/15 when the contribution will hit an estimated £10.3 billion."

...WITH PAIN SHARED FAIRLY

Neil O'Brien of Policy Exchange: "As a share of their income, the richest 10 per cent are contributing twice as much as the poorer half of the population towards fixing the debt crisis. The richest tenth will be about £1,600 a year worse off, while the poorest tenth will be less than £200 worse off."

ALTHOUGH VAT HIKE WAS UNFAIR

Matthew Sinclair of The TaxPayers' Alliance: "Voters might be left wondering why they should bother paying attention during elections if campaign rhetoric bears so little relation to reality on such a big issue. The increase in VAT from 17.5 to 20 per cent means that instead of the higher income tax threshold being a welcome break for millions of families on low to middle incomes, it is just inadequate compensation for their increased VAT burden."

BUT WHERE IS THE REFORM OF PUBLIC SERVICES?

Andrew Haldenby of Reform: "Two weeks ago, when launching the Spending Review, George Osborne called for a once-in-a-lifetime debate about the shape of government in the UK.  He implied that there is a right and a wrong way to cut the deficit.  It would be right to cut spending by addressing the structural causes of the deficit - i.e. public sector inefficiency and the UK's unwillingness to cut its pensions and health entitlements.  It would be wrong to leave the shape of public services and welfare unchanged, but limit their costs temporarily – “salami slice” – with public sector pay freezes for instance. Today George Osborne opted for the slice: a two year freeze in public sector pay (rather than linking pay with performance), a three year freeze in child benefit (rather than withdrawing it from middle and high earners), a slightly lower rate of increase of benefits and a slightly lower rate of increase of tax thresholds.  The general sense was that his ambitions for government were similar to that of the last administration."

AND WHERE IS THE ENVIRONMENTALISM?

Global Warming Policy Forum: "Chancellor George Osborne has today left low carbon businesses disappointed with arguably the least green budget address in recent memory. The low carbon economy and the need to cut carbon emissions barely received a mention as the chancellor's first budget address focused almost exclusively on the spending cuts and tax rises required to tackle the UK's budget deficit. There were a few bright spots for green businesses as the chancellor confirmed that the coalition government would "bring forward" plans for a green investment bank, although he provided no further detail on how such a bank would operate. He also said that the Treasury would "explore" proposals to replace Air Passenger Duty with a per plane levy that the Chancellor said would help to cut carbon emissions. However, a report on the proposal will not be delivered until the autumn, despite the reform being included in both the Conservative and Lib Dem manifestos."

...AND A WELCOME FOR THE END OF REGIONAL DEVELOPMENT AGENCIES

Matthew Elliott on The TaxPayers' Alliance: "A quick scan through the document this afternoon for information on the Regional Development Agencies (RDAs) threw up something worthwhile: they are to be abolished through the Public Bodies Bill, for which a White Paper will be produced later this year. Of course, we will be keeping a close eye on it to ensure that this Budget promise is not reneged on or fudged in any way."

'Coalition capital gains policy will reduce revenue by £2.5 billion'

The Adam Smith Institute has warned that Liberal Democrat plans to raise Capital Gains Tax - forced on George Osborne by the Coalition deal - may cost revenue.

Deawing on international evidence of CGT rises, the ASI concludes that revenue falls by 2% for every 1% increase in the CGT rates.

From the ASI press release:

"Amongst the new evidence considered is the result of CGT rate changes in Ireland and Sweden. The 1997 Budget in Ireland halved the rate of capital gains tax from 40% to 20%. The then Minister for Finance, Charlie McCreevy, was heavily criticized on the grounds that this would reduce revenues.  In fact revenues rose considerably, almost trebling and greatly exceeding official predictions... The report also highlights the extent to which revenues from other taxes would be lower as a consequence of the negative effect on economic activity caused by CGT rises. Evidence from Switzerland shows that cantons which eliminated CGT had 3.1% higher growth over those that did not.  Since a tax on capital reduces the amount of capital that can be formed and profitably used, the consequent lower levels of output, employment, and consumption would reduce a wide range of tax revenues."

The Express reports the key conclusions: "The Adam Smith Institute says matching CGT to income tax levels would have a huge negative effect, leading to an £880 million fall in revenue from CGT itself plus a drop of another £1.6billion a year in income from other taxes because of how the hike would depress economic activity."

In an editorial The Telegraph warns that higher CGT could be a "defining error" for the Cameron government;

"If the Government insists on bringing CGT rates into line with income tax, it should do so over a lengthy period, with indexation to take inflation into account. Taper relief of the sort suggested by John Redwood, so that people pay less for assets the longer they have held them, must also be part of any reform that claims to be aimed at taxing speculative gains. Gordon Brown's decision, at the outset of the Labour years, to end tax relief enjoyed by pension funds damaged the retirement plans of millions. It is essential that Mr Osborne does not make the same mistake next Tuesday. For many of the Conservative Party's core supporters uncertain about the Coalition's instincts, it will be a defining moment."

Ten facts about the rich public sector and the poor private sector

What's the biggest divide in Britain?

The divide between north and south? Between black and white? Between the children of intact families and those of broken families? Or, as David Willetts has begun to argue, between young and old? All are testing divisions but one of the most politically potent divisions of our time is the divide between private and public sector workers.

The divide is described as the "Great Jobs Apartheid" on the front page of today's Daily Mail.

The Mail is inspired by new research by Policy Exchange. Here are ten of PX's top findings:

1. On an hourly basis, the typical public sector worker is now 30% better paid than the typical worker in the private sector.
2. This pay advantage is not evenly distributed.  It is higher in lower grades, with the bottom 10% of public sector workers now 25% better paid than their private sector equivalents.
3. The public sector wage premium is small in the South East and London, but  higher in Scotland Wales the North east and North west, where public sector workers enjoy a 17-20% premium.
4. Over their lifetimes, people in the private sector work 23% more hours (equivalent to 9.2 years of a public sector employee’s working life) – where their public sector counterpart will either be on sick leave, holiday, strike or in retirement.
5. Since 2002 the public sector wage bill has increased three times faster than the private sector wage bill, growing by 33% in real terms, or £67 billion.
6. A remarkable net 97.7% of the increase in numbers of public sector workers has been in education and the NHS.
7. The number of management positions has increased particularly rapidly in recent years - by over 80% between 2002 and 2009.
8. Between 1997 and 2007, public sector productivity also fell, while productivity in the private sector increased by nearly 28% - leaving the former only two-thirds as productive as the latter.
9. Over the last decade the redundancy rate in manufacturing or construction has been seven times higher than in the public sector, roughly defined. During the recession these multiples increased to 16 and 10 times respectively.
10. Public sector employees have better pensions.  The difference is worth an extra 15% of their salary.

Coincidentally, the Adam Smith Institute today calls for 270,000 public sector job cuts over the next five years. The report, by Tim Ambler of London Business School, proposes to protect so-called frontline staff (teachers, nurses, doctors, police officers and active armed forces personnel) but for 100,000 job cuts at the Ministry of Defence and another 50,000 job cuts at Iain Duncan Smith's Department of Work & Pensions.

Dr Eamonn Butler of the ASI commented:

“These numbers sound radical, but it is worth remembering that more than a million new public sector jobs have been created since 1997. And as for political feasibility, the Conservatives actually proposed to abolish 235,000 bureaucratic jobs in their 2005 election manifesto. Now that the public finances are in such dire straits, this must be firmly back on the agenda.”

ASI report lists £16bn of non-bank privatisation opportunities

A new Adam Smith Institute report recommends 3% annual cuts in every departmental budget for the life of the parliament. Such cuts would reduce spending by £91 billion by 2015. The report by Nigel Hawkins is titled The Party is Over - A Blueprint for Fiscal Stability. Mr Hawkins, a City economist, backs George Osborne's decision to cut early but questions the decision to ringfence the NHS. It argues that the NHS budget should be cut by 2% every year with a focus on:

• Reducing payroll costs outside nursing;
• Managing hospital bed occupation more effectively;
• Creating greater efficiencies within PCTs;
• Cutting the annual drugs bill;
• Regaining control of the disastrous NHS IT project; and
• Scaling back the hospital-building programme.

Hawkins recommends that Secretaries of State unable to deliver 3% annual cuts should be fired.

The report - PDF here - also identified candidates for privatisation. Hawkins estimates that George Osborne can gather £16bn from non-bank privatisations including £3.8bn from the Royal Mail and £48.5bn from sale of the nationalised banks.

Click on table to enlarge.

Centre for Social Justice and Policy Exchange are best regarded think tanks by ConservativeHome's 'influentials panel'

Over the last few days ConservativeHome has been surveying readers and 'influentials' about the quality of the London think tanks. Tomorrow we'll publish how readers voted. Today we publish the results of voting by 94 influential journalists, parliamentarians, bloggers and other thought-leaders.

The Centre for Social justice was voted the think tank that has had the biggest influence on the Cameron project

The CSJ only just beat Policy Exchange. The CSJ won 40 votes and PX won 36 votes. Third, a long way behind, was Respublica with 5 votes.

The CSJ has played a leading role in David Cameron's biggest idea, "the Big Society". Seventy CSJ policy ideas have been adopted by the Conservative Party.

Policy Exchange was voted the think tank that was most effective overall

It won 33 votes. The CSJ won 29 votes. The TaxPayers' Alliance won 18 votes. PX's most recent success was its publication arguing against NI rises.

The TaxPayers' Alliance was voted the think tank likely to cause most difficulty for any Conservative government

It won a massive 55 of the votes in this section. Next came Reform with 10 votes and then the Centre for Policy Studies with 8 votes. The TPA recently produced a manifesto that set it against key parts of the Conservative programme. The Left's argument that it is a Tory front organisation is not believed by our panel of influentials.

The Adam Smith Institute was voted the think tank best at developing new talent

The ASI won 18 votes. Policy Exchange won 16 votes. The TaxPayers' Alliance and the CSJ both won 14 votes.

The think tanks demand big cuts from Darling (but don't expect them)

Ahead of today's Budget the centre right and reformist think tanks have been lining up to offer Alistair Darling advice. Here's a summary of what they're saying.

There is an air of unreality about the tough decisions that are going to be necessary, according to Mark Littlewood of the IEA:

“Politicians are not talking seriously about the need for dramatic and speedy cuts in public expenditure. A few billion here and a few billion there are nowhere near enough to restore market confidence. We can’t be expected to make sufficient savings from so-called efficiency gains; there will need to be major cuts to a whole raft of public services. We also need a radical overhaul of our welfare, education and health systems, to ensure that we don’t suffer as easily in future from the sort of reckless and out-of-control spending that has characterised the last few years.”

Eamonn Butler at the Adam Smith Institute agrees that spending needs to be cut:

"Public expenditure has increased by a third since 1997 – and has all that bought us anything worthwhile? We need nothing less than a complete re-think of what government exists for, and which parts of it we want to keep and even expand. But there is room for very large savings in departments, quangos and programmes that have simply grown, but which deliver little of value."

Andrew Haldenby of Reform has identified the measures being taken by other very indebted nations as examples of what the UK will eventually need to do:

• Portugal is means-testing more benefits and cutting the costs of the public sector workforce by 1 per cent of GDP.
• Ireland is cutting the costs of the public sector workforce through reductions in both pay (an average 7 per cent cut for all public servants) and headcount and reforming public sector pensions.
• Greece is cutting the costs of the public sector workforce through reductions in both pay (a 10 per cent cut in total public sector pay), reductions in full time civil service headcount through natural wastage and cuts in short term contracts.
• Spain is cutting the costs of the public sector workforce by 2 per cent of GDP through a pay freeze and reductions in headcount through natural wastage and cuts in short term contracts.

He goes on to identify three main tasks for the Chancellor:

1. The first is to eliminate the structural deficit in the UK public finances and return them to surplus.
2. The second is to secure economic growth and employment so that the cyclical part of the deficit is eliminated as well.
3. The third is to reform the UK public sector so that it achieves greater productivity even after the deficit is eliminated, allowing taxes to be reduced.

Matt Sinclair of The TaxPayers' Alliance reminds us of the £50bn list of cuts that the TPA produced with the Institute of Directors.

Yesterday we noted Policy Exchange's pre-budget report and its warning against higher National Insurance Contributions and also higher VAT.

In its advice to the Chancellor the CPS emphasised a bold measures to accelerate economic growth.